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Do you spend dividends in taxable accounts or reinvest
12-13-2015, 05:43 PM
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#1
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Recycles dryer sheets
Join Date: Jan 2011
Posts: 128
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Do you spend dividends in taxable accounts or reinvest
Hi,
We retired in march of this year. Our luck would have the market falter but fortunately, despite building a new house and outfitting it, I was able to live on only a 9k draw from short term bonds because of other income. I would think it advantageous to reinvest dividends in a taxable acct as they are qualified dividends (vanguard total stock) and should incur a 0% tax rate. I would gladly take them as cash and spend if the market was up from our cost basis but alas, it is not. Therefore, why not reinvest the dividends and draw down more from short term bonds? (ie, spend from what has done the best this year?)
Thanks.
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12-13-2015, 06:03 PM
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#2
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Thinks s/he gets paid by the post
Join Date: Dec 2015
Location: Santa Paula
Posts: 4,076
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IMO, reinvesting dividends is a good idea. I have been doing all my investing life. The power of compounding is awesome
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12-13-2015, 06:05 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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Vanguard Total Stock this year is only 95% qualified dividends. Large-cap index is 100% qualified dividends.
But why have any bonds in a taxable accounts? That's generally not tax-efficient. So look at the big overall pictures. If your bonds were in tax-advantaged accounts, you could spend the stock dividends and even sell stock held long-term to get the 0% LTCG tax rate. If your asset allocation was messed up by selling too much stock, then exchange from bonds to stocks in your tax-advantaged account.
So tax-efficient equities in a taxable account can be tax-free. It is like having more money in your Roth IRA when it is done right.
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12-13-2015, 06:17 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2013
Location: Texas
Posts: 10,930
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Burns a hold in my pocket. Dividends are deposited into my checking account and just "go" for "whatever". Just another source of cash flow. I only know how much my dividends add up to when I do my taxes the following year.
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12-13-2015, 06:32 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Jun 2004
Location: No. California
Posts: 1,858
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I take all my dividends. Between those, SS and pensions, I have enough to leave my investments alone. However at some point I may start taking up to 4% each year, though right now I don't know what I would spend the money one yet.
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12-13-2015, 06:32 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Sep 2012
Posts: 1,570
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Quote:
Originally Posted by Souschef
IMO, reinvesting dividends is a good idea. I have been doing all my investing life. The power of compounding is awesome
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I reinvested dividends all my (accumulation) investing life, also. Now, in the decumulation(?) phase, I take the cash.
__________________
You know that suit they burying you in? Thar ain’t no pockets in that suit, boy.
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12-13-2015, 06:33 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,227
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Reinvesting dividends is no different than taking the cash and immediately rebuying, only it is done a day or two more quickly if you do it automatically. There is no tax advantage to reinvesting. You report the dividend income no matter what, at 0% or 15% depending on your bracket. Whether you reinvest has no bearing on the taxes.
If you want to rebuy what you're getting dividends on, reinvesting is fine. If you want the flexibility to invest in whatever you want, or spend that cash and hold other investments, don't reinvest. I like the flexibility. If I really want more of the fund that gave dividends, I can rebalance.
It really doesn't matter that much. If you reinvest but decide that's not what you really wanted to do, you can quickly sell (with SpecID basis) and probably have very little short term gain or less.
I just prefer to keep it simple. I need a certain amount of cash throughout the year. I can get much of it with the dividends. Then I look at how I want my investments to be, and rebalance if needed.
I don't quite get the last sentence in the OP's post. Were short term bonds actually the best investment this year?
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12-13-2015, 06:52 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Dec 2014
Posts: 2,511
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I don't auto reinvest any distribution in taxable accounts, but do in most cases in tax free or deferred accounts. That doesn't mean I spend the distributions. Most are reinvested as part of re-balancing or in new investments.
In retirement you do have to get your spending cash from somewhere. If you have a pension or are taking SS...that might do it. For people like me (too young for SS and no pension), we take it from cash or distributions.
But in retirement some of the rules may change for some. Assume you have no income source, so you take from cash, distributions or selling assets. Assuming taxes being filed MFJ with $2MM distributing 2% would give us $40k. With MFJ there is about $20k between the standard deduction and exemptions. What this means is that you can handle some bond or non-qualified distributions as you can offset at least $20k.
I would suggest validating the standard rules based on your own situation as to where different assets belong.
To auto reinvest or to just invest distributions based on other factors (like re-balancing) is a matter of choice.
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12-13-2015, 06:53 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Nov 2014
Location: Austin
Posts: 1,384
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I reinvest - automatically.
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12-13-2015, 06:54 PM
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#10
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,500
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In my taxable accounts, I take dividends in cash. I use them for rebalancing and living expenses.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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12-13-2015, 07:02 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,140
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Quote:
Originally Posted by W2R
In my taxable accounts, I take dividends in cash. I use them for rebalancing and living expenses.
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Same here.
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Retired since summer 1999.
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12-13-2015, 07:16 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Jul 2009
Location: North Scottsdale
Posts: 1,545
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Quote:
Originally Posted by gcgang
I reinvested dividends all my (accumulation) investing life, also. Now, in the decumulation(?) phase, I take the cash.
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+1. Those dividends are my paycheck!
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FIRE'D in July 2009 at 51...Never look back!
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12-13-2015, 07:24 PM
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#13
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Thinks s/he gets paid by the post
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
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Reinvest. I'm in a process of shifting some funds in taxable account that pay high dividend to Roth IRA.
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Just another day in paradise
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12-13-2015, 07:52 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2009
Posts: 9,343
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I let it build up in my money market and then I find something else to buy.
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12-13-2015, 08:13 PM
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#15
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2009
Posts: 6,695
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I take dividends as cash if they are going to be used to pay my expenses. Otherwise I reinvest them. Pretty simple.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.
"I want my money working for me instead of me working for my money!"
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12-13-2015, 08:37 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Jun 2014
Posts: 1,192
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I've been re-investing for the last decade, but thinking this year I may switch a few to cash to help pay the tax bill. Seems easier than worrying about what to sell.
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12-13-2015, 08:56 PM
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#17
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Thinks s/he gets paid by the post
Join Date: Mar 2010
Posts: 1,994
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I don't reinvest either and allow the dividends to go to the cash account. I use it to buy other positions or more of the same if I chose to do so. I have not started taking them as cash to bolster my living expenses….yet.
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12-13-2015, 09:01 PM
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#18
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,124
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Now that we are in draw-down I use the dividends in the taxable accounts for expenses.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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12-13-2015, 09:02 PM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,363
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When I was working I reinvested. Once I retired I take them in cash.. in effect the reduce my withdrawals since what we need exceeds our dividends.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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12-13-2015, 09:37 PM
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#20
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Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 2,525
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Quote:
Originally Posted by pb4uski
When I was working I reinvested. Once I retired I take them in cash.. in effect the reduce my withdrawals since what we need exceeds our dividends.
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+ 1 Same here
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